Virtualization is actually starting to spread across the entire infrastructure.

"Today, IBM virtualization technology can virtualize almost 80 percent of a business's IT infrastructure — across not only servers — but networking and storage devices as well," says Richard Lechner, IBM's vice president for virtualization.

VMware, which was acquired by EMC in 2005, remains the largest player in the market. But what was once a lonely frontier is now a well-populated community. There is the open source Xen project, as well as IBM's Virtualization Engine 2.0, Microsoft's Virtual Server 2005, SWSoft's Virtuozzo, and Virtual Iron Software's Virtual Iron 2.0.

"The virtual machine software market space has seen a substantial amount of evolution, with the Xen technology bringing forward the concept of an integrated open source virtualization layer," says IDC research director, system software, Al Gillen. "However, other vendors, such as Microsoft, are seeing hardware virtualization as an important technology, [and] that will be integrated directly into the Windows product portfolio in the future."